Friday, October 30, 2009

People want the Savior State to pay for their healthcare, retirement, education, housing, etc., even as they fear the unlimited power and funding they have granted their government. You can't have it both ways.

Correspondent Mark A. sent in this report on the over-reach of government and the potential for abuse of power.

Caught your stories recently about extortionate fines and so on. Last night I ran into this story Police crush sex offender's car; warn of moreabout a Denver ordinance that permits the city to sue and confiscate property used in the commission of various crimes (modelled after heinous drug laws affirmed by the Supreme Court).

It struck me as outrageous on multiple levels, not least the entrapment aspect and sex-crime hysteria (others may disagree). Yourself and Jim Kunstler have pondered the devolution of society as money becomes scarcer, foreseeing a breakdown of enforcement ability.

Me, I think we underestimate the potential for the development of an increasingly rigid authoritarian (if nominally "democratic") regime as the government increases its relative share of resources and aims to preserve "order" as well as income as people become more stressed. Certainly all the instruments are in place - legal, technological, etc. Usurping revenue is one aspect of this progression, but arrogating authority is another more frightening one. Never trust the State (isn't that what the Founders advised?) Just a thought.

Here is an excerpt from the story:

The unit was created by an ordinance in 1994 and targets things described as: "Any parcel of real property, personal property, or motor vehicle on or in which any of the following illegal activity occurs, or which is used to commit, conduct, promote, facilitate, or aid the commission of or flight from any of the following activities."

Those activities include 22 offenses, which range from drug or weapons possession, to repeat traffic offenders and sex offenders. (CHS: you guys with mutilple traffic tickets: you are dangerous beyond belief! We're targeting you for complete destruction of your assets!)

Anyone charged with those crimes could have their cars crushed or property seized, as part of the law.

Sometimes the seized property is a building or a business.

The danger of political activities being lumped in with criminal activity is higher than most complacent Americans believe. Nobody will defend a sex offender's rights, of course--but how about when tax resistance becomes a "crime"? (It already is, of course.) It's also a "crime" to resist an illegal war, too.

It's easy to be naive about the essentially unlimited powers of the State. Most people believe that only "bad people" get caught by the government trawler, but it isn't quite that simple. If you or those who agree with you threaten the State's Imperial ambitions, tax collection or Power-Elite supported agenda, then you may be targeted. I can say that it "can happen here" because it's already happened here.

I was with a friend when the FBI swooped in to arrest him for political crimes against the State, i.e. refusing to support an illegal (undeclared) war. At the time, the FBI has some 10,000 agents tasked with suppressing or disrupting the antiwar movement by whatever means were deemed necessary. Meanwhile, the agency's anti-Mob (organized crime) unit was reduced to minimal staffing. When the State feels its Imperial agenda threatened, then run-of-the-mill criminality gets ignored and the full resources of the State are turned on political threats to the status quo.

Having been called into the FBI office myself for grilling (after being threatened along the "we know where you live" line), I can say from experience that the boundaries which are supposed to protect our rights only exist if you can afford high-powered legal representation and if you are powerful enough to raise a stink in the "right circles."

Citizens with nothing to lose and no stake in maintaining the status quo are dangerous to the State (and thus to the Power Elite which has captured the State's lawmaking and enforcement arms), and so the State's first line of defense is to become a Savior State which showers entitlements as a way of providing voters with a stake in the system.

The second line of defense is to become a repressive Police State with an active secret intelligence program against domestic protest (as occurred in the late 1960s-early 1970s with domestic C.I.A. spying and COINTELPRO, the FBI's secret campaign to infiltrate, undermine, marginalize and/or subvert the antiwar movement).

The 1976 Church Committee formed to investigate the domestic intelligence campaigns concluded:

"Many of the techniques used would be intolerable in a democratic society even if all of the targets had been involved in violent activity, but COINTELPRO went far beyond that...the Bureau conducted a sophisticated vigilante operation aimed squarely at preventing the exercise of First Amendment rights of speech and association."

Anyone who doesn't believe their government is capable of Police State repression and subversion of First Amendment rights should research COINTELPRO more fully. While you might have disagreed with the groups subverted in 1969, the line between "those hippie radicals" in 1969 and "us Tea Party tax protesters" in 2009 is thin to vanishing.

Nothing will be more threatening to the State and status quo than tax resistance/rebellion and former insiders (those whose belief in the system has faded) turning into whistleblowers on the web.

Put simply: the State holds all the hammers, and you know what happens to raised nails.

Few seem to grasp the connection between an all-powerful Savior State and an all-powerful repressive State. In granting the power to become a Savior State then you also grant it the power to be a repressive regime or corrupt kleptocracy which openly serves an Elite and is accessible only via bribes/political donations (take your pick).

Correspondent Doug K. drew the line connecting the Savior State and control very succinctly:

It has become glaringly evident that local "law enforcement" targets those forced to endure visible embarrassment of hardship. Our repeated "contributions to the public good", made to atone for such grievous offenses as economic misfortune, only serves to perpetuate this relationship.

Yet, even more outrageous (to me) than such abuses of authority, is the quiet public acceptance. The pervasive public attitude being; "As long as they hassle you they'll leave me alone", or " As long as you have to pay I get to keep my money". If such self absorption isn't proof of successful public psychological manipulation through propaganda (did you watch "Century of the Self"?), then what is? Deeply entrenched disregard, occasionally including open displays of contempt, for those forced to endure hardship, sure seems far more manufactured than natural.

Beyond the "social proof" type of encouragement to disregard the less fortunate, the propaganda pushes happy pills. No less than a third of the people in this area have been willingly chemically lobotomized, in part because that has become a de-facto prerequisite for acceptance into the "social safety net". An overlapping fourth of the neighbors frequently "advertise" they're well equipped with high powered automatic weapons.

Both groups "get a pass" from local law enforcement on any misdemeanor, unless it's related to "prosecutorial money making" (war on drugs), or something that excites the prosecutor's prurient interests (seriously!). Having endured multiple instances of vandalism and animal mutilation for the amusement of the happy pill crowd, this is quite dispiriting.

Speaking of the social safety net: What a sham! I've seen plenty of people who admittedly(!) cause most of their own problems showered with assistance while those who recognize the causeof their hardship is no fault of their own don't ever qualify for anywhere near the same level of help, if any at all.

I don't know how the social safety net truly operates in other places (each county is this state has their own semi autonomous office), but most of the rural areas in this state function/ practice the same way as the local office. Anybody in this area not stressed out enough to demand a prescription for chemical lobotomy isn't stressed enough to need assistance. Money (need) has nothing to do with it.

The people I know who have "given in" to the demands of "safety net" inclusion appear to be doing better than they were when gainfully employed. A significant fraction seem to have more time and more money to burn now that their obligations are being taken care of. One person I know has leveraged their officially sanctioned "misfortune" into what appeared to be a legalized fraud, then bought an RV and is now out touring the country!

Taken together, all this (4 preceding paragraphs) appears to be evidence of a deliberate intentional effort to make sure that if (when?) the villagers ever do pick up torches and pitchforks they'll turn on each other instead of marching toward the castle.

Local PTB aren't just extracting funds from the peons. It was recently revealed that the bread and butter of one local "economic success story" (as reported in a number of local and regional publications) was profits from illegal drugs (pot growing operation). I've heard from several members of law enforcement --after they turn off their pocket recorders-- that several other well-to-do "pillars of the community" are involved in worse (meth).

The only difference being that the pot grower didn't share his good fortune with the right people, while the other names always show up on published lists of contributors to the local elected officials. If you're doing well in this community, and you're not making some sort of "contributions to the public good", local authorities will be scrutinizing your every move.

What is required to qualify as "economic success" appears to be entirely dependant on at least one of two things, either dumb luck (opportunity) or some sort of "crookedness". I clearly don't have the former and the "right people" aren't in any way obligated to permit the latter. Money really is like rain, and for a lot of people this is a severe drought. Doesn't matter what kind of rain dance you do, let alone how hard or long you keep dancing. All you can really do is keep your buckets handy. Unfortunately there hasn't been a cloud in the sky for several years.

Correspondent J.P.B. submitted this comment on the use of surveillance for, um, "upholding the law"--or is it just another violation of our rights for the purposes of extortion? Welcome to a State kleptocracy armed with high-tech gadgetry:

I have been warning folks to be on the lookout for this for the past two years. Now I find out that the Franklin county Sheriffs have been testing, for 2 years, cameras that read license plates as they drive by. They then run a search on the plate to see if there are any outstanding warrants, etc. Funny how they rolled this out and did not really publicize it. I find it creepy.

I wondered how I got pulled over for an expired registration (I had the new one on my seat as I was heading to the store to get new screws for the license plate. I received no ticket) It puzzled me for the past two years how an officer parked on the side of the road was able to see my plate sticker as I drove past at 45 - 50 mph. Now I know how! Sneaky. They are desperate and will stop at nothing. Nothing! Rules, rule of law, pfffft. I have been saying that for the past few years also. They keep changing the rules as they go along to suit themsleves and their oligarchs.

You can't grant the Central State powers to be a Savior State without also granting it the power to become a repressive regime that is nominally "democratic" even as the levers of actual power are operated by various Power Elites.

I would rather jettison the Savior State and be poor rather than live in a kleptocracy run for the benefit of the State and Power Elites partnership.

Since the Savior State is doomed to insolvency, other arrangements will have to be made in any event.

As I type the stock market is down handsomely for the week, but I see the potential for a retrace back to the highs (and lows in the dollar) so it behooves us to be careful and book profits whenever possible.

Thursday, October 29, 2009

If you wonder why our society is so schizophrenic--look no further than Crazymaker Journal.

I happened upon a fascinating new online publication: Crazymaker, the Journal of American Media and Lifestyle. I have to say the content set me back on my heels; rarely do I see such an honest portrayal of the carefully mixed messages dished out as "news" and "entertainment".

Gregory Bateson addressed how a cognitive "double bind" could create a schizophrenic state of anxiety and dysfunction.

Their findings indicated that the tangles in communication often diagnosed as schizophrenia are not necessarily result of an organic brain dysfunction. Instead, they found that destructive double binds were a frequent pattern of communication among families of patients, and they proposed that growing up amidst perpetual double binds could lead to learned patterns of confusion in thinking and communication.

Human communication is complex; 90% of it is nonverbal (see also Albert Mehrabian) and context is an essential part of it. Communication consists of the words said, tone of voice, and body language. It also includes how these relate to what has been said in the past; what is not said, but is implied; how these are modified by other nonverbal cues, such as the environment in which it is said, and so forth.

For example, if someone says "I love you", one takes into account who is saying it, their tone of voice and body language, and the context in which it is said. It may be a declaration of passion or a serene reaffirmation, insincere and/or manipulative, an implied demand for a response, a joke, its public or private context may affect its meaning, and so forth.

This is an apt description of the craziness created by media/marketing messages every minute of every hour of every day in the USA. Bake a super-rich cake, and oh my, why are you so fat? Now you have to torture yourself with diets which don't work.

Girls: want to look hot and sexy? if you don't, you're a loathesome loser.

The media profits from selling marketing/adverts. Marketing causes people to become schizophrenic. Adverts' meta-messages often contain mplicit sexual content or domination/submission themes, or the promise of "cures" for everyday living--or for the results of the very behaviors being prompted and encouraged.

Some of the conflicting messages are so painfully obvious, yet consumers are seemingly blind tot he paradox of a magazine thick of with adverts for more products being titled Real Simple:

Sadly, as a result we all have quatro-polar disease. Fortunately, there's a medication cure: zombiestra.

Yes, I am alive to the irony that this site runs adverts selected to match the content of the topic being addressed. Sometimes the "contextualization" is delayed or mismatched, and the irony is heightened.

So I cannot claim some blameless role; I too am part of the machine, accepting money to fund the operation of this site. Should advertising be banned? That might be an ideal for some, but the more realistic solution might be to work on teaching a healthy skepticism based on cui bono--to whose benefit is this advert running? Once that has been established, then the "consumer" is at least grounded in this reality: we are the target/mark of the con.

The other solution is to minimize exposure to the mostpowerful adverts, which are on TV. Thus minimizing exposure to commercial and cable TV is an excellent start to minimizing the impact of media/marketing crazymaking.

Wednesday, October 28, 2009

Terrified of openly asking the citizenry to pay higher taxes for their services, local government has sought to boost revenue by raising junk fees and what amounts to "theft by other means"--absurdly costly traffic fines.

Correspondent J.D.G. provides us a detailed window into the tawdry world of local government's abuse of authority and unspoken collusion of law enforcement and judiciary to raise revenues without actually presenting the citizens a choice in the matter.

If we actually lived in a nation with "taxation with representation" rather than a multilayered kleptocracy (the Power Elite and State partnership), the local government would come hat in hand to the taxpayers and lay it all out: here is why we need X millions of dollars to provide the services you want, and all costs are presented in detail.

In the real world, newspapers have to sue to obtain the pension records of public employees. Now some pensioners object to the release of the information as a violation of privacy, and I agree: but the size of the pension and their position should be in the public record (their name need not be listed). To deny the taxpayers access to records of where their taxes have gone based on privacy is a red herring.

In other court papers, Olson pointed out that a public safety employee who retires at 50 could draw as much as $3 million in pension payments during the next 35 years.

In Contra Costa County, Moraga-Orinda Fire Chief Peter Nowicki, draws an annual pension of $241,000 yearly although his top salary was roughly $185,000. The fire district hired Nowicki back as interim chief with a $174,000 contract while drawing the pension.

Let's also dispense with the illusion that a furlough is an actual pay cut. Working 20% less and receiving 20% less pay is not a reduction in pay per hour--it is a reduction in hours worked.

A reduction in pay is working the same number of hours for 20% less salary.

Let me be clear: this is not a critique of government employees but of the systemic abuse of authority and underhanded methods being used to raise local government revenues without having to seek the approval of the taxpayers. If you read this account, you will see how the charge of "theft by other means" is justified.

On 2-15-2008, as I was traveling north on Lincoln Ave in San Rafael I came to an intersection that was controlled by a traffic light. My speed of travel was between 15-18MPH, I had the green light and three cars including me proceeded to cross the intersection of Lincoln Ave & Paloma Ave.

Important is to note that Lincoln Ave. on the southern side of Paloma Ave. is a four lane road, albeit cars are parked alongside the curb at certain hours of the day.

As I was traversing said junction, a school bus traveling south pulled close to the curb at Paloma & Lincoln and as it came to a stop, flipped on his red flashing lights. Just a few moments after I had crossed the intersection, one Motorcycle Police Officer passed me, at great speed, his red & blue lights lit, and pulled over the car and driver who drove through the intersection five yards ahead of me.

Within moments, I noticed another Motorcycle Police Officer right behind me, blue & red lights flashing, waving me to the side of the street. Having gone without a traffic ticket or any kind of incident for more than ten years, I was surprised.

After the Motorcycle Officer pointed out the school bus with his flashing red lights and a minimum of exchanged words, he gave me a traffic ticket. The officer was very polite and businesslike, little did I know then… this same officer gives tickets for that very offense almost on a daily basis. Passing a school bus with his flashing lights on, according to CA Vehicle Code 22454A, is highly illegal and carries a penalty of $561.00.

Things dragged out, it took about 9 weeks before the motorcycle officer finally entered the violation into the County Clerk’s computer, and shortly after I received my ‘Courtesy Notice’, (Copy enclosed). The Police Officer assured me initially that I would hear from him within 14 days!

After thinking about this ordeal at length, I decided I will contest this infraction. To my great surprise and dismay, I found out, that before receiving a court date I had to stand in long lines at the Court House on two different days, a period of time that not many people can afford to be away from their jobs! Most people resign to the fact that they are wrong; they must pay the fine, and let the county get away with it. Easy money for the County!! My court date was set for 27 August 2008.

As I was waiting at the Civic Center for the court date, I was approached by a woman who apparently overheard my getting a ticket for passing a school bus. After a brief exchange of words, we realized that we suffered the same fate, but on different days. Her infraction occurred after my date, yet her court date was set for 14 July 2008. Her name was Diana, residing in San Rafael, studying to become a court reporter.

The facts:

Both infractions occurred at the intersection of Lincoln & Paloma Ave., Vehicle Code VC 22454A, and both times the citations were given by Motorcycle Officer P., passing a school-bus with flashing signals!

On both occasions, we had a ‘green’ traffic light driving on Lincoln Ave, which definitely is a four-lane road, when you enter Lincoln Ave. at Mission Ave.

On both occasions, Diana and I stood before Judge H. in Dept. #N, my trial was at 10:30 AM, and Diana’s trial I believe started at 2 PM.

On both occasions, traffic was flowing and the school bus driver should not turn on his flashing red lights as long as the traffic signal shows the green light.

Even though the circumstances were identical, and the trials took place just 43 days apart, the outcomes were opposite!

Also note, neither Police Office was visible to me before I crossed the intersection. By law, the Officer needs to be visible!

I have enclosed copies of both ‘Courtesy Notices’ as well as Diana’s trial brief. In it, she explains in great detail why the traffic ticket was given in error! Diana, so she told me, argued in front of Judge H. the reasons why a car may pass by a school bus if the intersection in question is controlled by either a ‘traffic signal’ or a ‘police officer’! Both supersede the authority over any flashing red school bus lights, which should not have been turned on in the first place, at least not as long as traffic was flowing through the intersection while a green traffic light was signaling to do so!

During Diana’s argument Judge H. waved his copy of the vehicle code and stated that he realized Diana had done a lot of research, she knew her stuff and consequently declared her “Not Guilty”! To everybody’s surprise, 43 days later, in front of the same Judge, flanked by Police Officer P., under the exact same circumstances, naming the identical vehicle code, I was found “guilty”!

I have copies of the trials from Judge H.’s court in CD form.

My anger is not about the fact I received a traffic citation, but it bothers me tremendously that a ‘Government Agency’ fleeces its constituents under color of law and color of authority without shame. Most persons in that situation do not have time to return to Marin County Court over several days' time in order to contest the citation; they rather pay the fee and forget about it. That is exactly what Marin County is counting on, thereby extracting and extorting thousands of dollars from unsuspecting and innocent citizens.

I have surveyed and watched the intersection in question over time and on several occasions and have come to learn, that the San Rafael Police Department, with the help of a ‘friendly Judge’, purloin monies from citizens on a regular basis. It would not surprise me, if the amount pocketed by Marin County, using this very technique, surpassed several hundred thousand, if not in excess of a million dollars.

I strongly feel that this Marin County Caper should be investigated, exposed and the County be held accountable!

As I was meeting with Diana before her court date in July, we ran into another woman who had gotten an identical ticket from officer P., went to court and was found guilty by Judge H. She paid the $561 fine.

That is exactly, Ladies & Gentlemen, which proves what Charles writes in his Blog!

Under the flag of Law, under the flag of authority, we are all being fleeced, sometimes very simply, other times more sneaky scams are being used.

I have watched the intersection in question, again and again and have come to the conclusion that the citizens of San Rafael must have paid tremendous amounts to the fine Marin County workers in order to keep their pensions funded.

Thank you, J.D.G., for providing us with a detailed account of how "justice" has been undermined by a rapacious search for higher revenues.

We can conclude that if you have the skills and knowledge of an attorney, you might--might-- escape the collusion of the Judiciary. Or maybe not.

I will end with a story recounted by a friend who was nailed in a speed trap a few years ago while driving across the open spaces of the West (Montana, Wyoming, South Dakota). It was on the weekend, and thus the front office of local law enforcement was closed; no credit card payments for the $400 fine could be accepted. It was cash or jail.

Nowadays, that fine is probably $600--revenue enhancement, heh.

Why do I feel like we're living in a Third World kleptocracy where bribes have to be paid in cash?

My friend happened to be the sort who actually carries a large amount of cash and he barely raised the fine by emptying his pockets.

Now put a person driving an old car who does not carry $400 because they're living on unemployment and they don't even have $400. Now add a couple hundred bucks fine for the defective tailight and another couple hundred dollars for driving without insurance (either keep the electricity on or keep the auto insurance, which would you pay?), and you get a $1,000 total the poor person cannot possibly pay. Indeed, that sum is larger than the value of the vehicle and the cost of a year's insurance combined.

So the fine goes unpaid (adding another $500 fine) and the citizen will get arrested next time an officer notes the broken tailight, and said citizen will effectively be hauled off to debtors' prison by the local government.

If this version of "law enforcement" qualifies as "justice" then we truly have slipped into a Orwellian nightmare of abuse of authority, extortion and theft by other means.

Tuesday, October 27, 2009

Popped speculative bubbles tend to retrace to their pre-bubble prices. Housing has already retraced 75% of the bubble--only 25% still to go.

When it comes to post-bubble retraces, the fundamental reasons may not matter as much as the technical case for a full reversion to pre-bubble prices.We all know the fundamental reasons why housing shot up--a credit bubble of epic proportions plus securitization, fraud and low interest rates, to name but a few factors--and why housing has plummeted: foreclosures and inventory are rising, tightening of credit standards by private lenders, etc.

But the ultimate predictor of price is technical: speculative bubbles retrace to their pre-bubble prices, or in many cases even crash below those levels.

Those arguing the fundamentals are always grasping at various straws to support the case that prices won't drop all the way back to pre-bubble levels, and they're always wrong.

Thus when the NASDAQ dot-com bubble topped above 5,000 in 2000 and then sank to 3,000, the fundamental analysts piled on reasons why 3,000 was "the bottom." Indeed, the market did recover the 4,000 level briefly--at which point it reversed and drifted all the way down to 1,100, it's pre-bubble level.

In other words, regardless of the fundamental reasons offered (they're not making any more land, inventory is drying up, foreclosure rates are dropping, etc.), markets tend to fully revert to pre-bubble prices.

Here is a chart of the national median prices which have already reverted to 2002 levels. The future full retrace has been added as a projection:

While there is no absolute way to project the final bottom, many bubbles exhibit a symmetry in their rise and fall. Thus if a bubble took eight years to reach its apex, there is some history to suggest that it will bottom out in roughly the same time span.

That would put the final bottom in the 2013-2014 time frame.

The truly bubblicious markets have already reverted fully 75% of the bubble.Take a look at this chart of median prices in California. Median rices have already dropped to 2001 levels--a staggering 55% decline and a 76% retrace of the entire bubble rise from $180,000 to $600,000.

"Only" $100,000 more to drop for a full reversion to the starting point of $180,000.

There is no law which states that prices have to stop at 1998 levels. Given that this is median price, then high-priced homes tend to keep the median price above the average price. If high-priced homes fall precipitously in value then that would drop the median price substantially.

What is not visible in purely nominal median home prices is the catastrophic retrace of homeowners' equity to levels not seen since the 1970s. What is noteworthy in this chart is that homeowners' equity has already fallen below pre-bubble levels. In other words, the average American homeowner has less equity than before the bubble tripled prices in "hot" areas.

We can surmise that equity extraction via HELOCs (home equity lines of credit) and re-financing might be the cause of this horrific loss of equity: when values shot up, American extracted some $5 trillion in equity. Now that values have dropped, equity for about one-third of homeowners has essentially vanished, along with the ability to borrow money against their homes.

The consequences of a further retrace in valuations to 1998 levels are clearly dire for household wealth. If the median price of housing nationally falls another $40 -$50,000, as will occur in a full reversion, then all that decline will come straight out of remaining equity. In California, the same can be said of the expected $100,000 decline in median valuations.

As household equity (wealth) declines, the "reverse wealth effect" kicks in with a vengeance. Once we feel poorer, we start acting poorer--even if we don't count on our equity for living expenses.

What does the reverse wealth effect mean in an economy of which 70% is private consumption/consumer spending? It means people do not feel wealthy enough to spend money they don't have, and it means people will not be able or willing to tap whatever equity does remain in their homes.

If we ponder these charts, it's difficult to conclude the consumer can recover his/her free-spending ways and thus difficult to expect the economy to grow on the backs of renewed consumer spending.

Monday, October 26, 2009

My trader's intuition is flashing warnings that the stock market might drop off a waterfall starting this week.

Let's start by stipulating if I was actually smart then I'd be rich, and I'm not.Second, let's re-read the HUGE GIANT BIG FAT DISCLAIMER below to refresh our awareness that these are the rantings of an amateur observer, nothing more, posted here for free (Yes, you get what you pay for).

A trader's intuition, eh? Fa, fa, fa. That and $2 will get you a cup of coffee.True. So let's run through some charts.

The MSM is pounding us 24/7 with the "fact" that the GDP will print a rise in the third quarter and hence "the recession is over." Uh, do these charts reflect a growing economy?

Here's the good news: this is the sharpest stock market rally on record:

Nice--but how about jobs?

(Both charts courtesy of The Big Picture blog)

How about the household balance sheet?

How about homeowners' equity?

Gee, is negative equity rising? (homeowners "underwater" on their mortgages)

How about credit card delinquencies?

Don't tax receipts reflect the real economy?

But the American consumer never stops spending, right?

And home prices are rising, right? (Use a magnifying glass as necessary to locate rise)

But all those subprimers are out of the system, right? Their houses have been foreclosed and sold to investors euphoric over "catching the bottom in real estate," right?

Well, sort of, except that the "upper crust" market of prime and jumbo loans is deteriorating faster than an ice cube in the Arabian Sea. (See chart.) Foreclosures in the top tier of homes--those in the highest price range--have almost tripled since 2005 as a percentage of all foreclosures.

And which households were the big spenders? Most likely the ones with the biggest, priciest houses.

This chart alone blows the crowded "recession is over" boat right out of the water. If the households with the biggest mortgages and priciest houses are slipping into foreclosure at a rising clip, then precisely who will be spending at a high enough rate to trigger a sustainable rise in private consumption? (Recall that private consumption is 70% of the U.S. economy.)

So what are households doing with whatever cash comes their way? Paying down debt and saving cold, hard cash (See chart.)

Add these charts up and do you get a solid exit from recession based on growth in employment, household assets, household equity and household spending? No, you do not.

Let's face reality: the Federal government borrowed $1.4 trillion in the 2009 fiscal year (fully 10% of the U.S. GDP) and basically blew it supporting the economy in various ways. The Federal Reserve also funneled hundreds of billions of dollars into the banks and financial sector, creating unprecedented liquidity at near-zero rates.

That hasn't done much for lending (which is falling) or Main Street American business but it sure has handed investment banks plenty of free money for various speculations. (See chart 1.)

So where does this leave us? With a stupendous disconnect between the real economy and the high-flying, euphoric stock market. My intuition is the disconnect is about to resolved in favor of reality.

Take a look at a chart of the VIX--the so-called Fear Index. It is reflecting confidence and complacency--the perfect set-up for a market about to fall screaming off a waterfall. Recall that the VIX moves inverse to the market: if the market is rising, then the VIX is low, and if the market is falling, the VIX is rising.

This is a chart of supreme complacency--except for the indecision of those tall candles of the past few days. The VIX has shot up and fallen back in wild gyrations-- just the sort of action which typically marks tops.

How can we square this swaggering confidence in the stock market's relative safety with the rapidly crumbling real economy?

We can't.

When I worked in the back office of a small quant shop our clients were mutual fund managers--smart guys and gals. Does anyone actually think the smart players believe the Fox news-CNBC shills that the economy is fine now, so buy buy buy? Of course not. They're watching for any weakness to dump. The really smart ones have already hedged or fanned out of their longs. But many are waiting until the party ends, confident that there will be some warning bell that only they will hear.

But it might not work out that way. Perhaps the crowded room which will rise in unison and rush for the exit when the alarm sounds. This feels like the week the crowd rises and suddenly realizes there are thousands of traders and managers all heading for the same little exit. This is intuition, not analysis.

So by way of disclosure: I own calls on inverse ETFs which rise if the market falls, and I advised my sister to sell Monday morning--sell hard, sell fast, and go to cash. Sell the gold funds, the stock funds, sell it all. That is not advice for you, of course, it is only a disclosure. As I write this at 10 p.m. Sunday evening, the Nikkei index is up and the global markets seem poised to continue their giddy eight-month long party.

Time will tell if that long, deep gash left by reality below the waterline has doomed the ship or not. I'm sensing that it's time to grab a lifeboat and leave the milling crowd of party-goers with the unenviable risk of sinking.

Sunday, October 25, 2009

In response to my suggestion of a rather demanding investment approach, correspondent BOC suggests a simplifed strategy that takes a few hours a year to manage.

Correspondent BOC recently submitted this informed view on simplifying our investment strategy to save time, money and anxiety and earn a consistent return.

After wending my way through Deflation or Inflation: Who Cares?(October 9, 2009) (nice piece of writing as usual), I finished with a distinct sense of ennui. I believe this derived not so much from your distinctly honest style as much as from the destination at which you arrived:

"We all want a simple investment strategy that works in all time frames and all eras-- but no such strategy exists once you understand purchasing power and relative performance/ratios/ pairings."

I am afraid that, for most of your readers (bright as they are), your conclusion might well be summarized as "The situation is not just serious but hopeless as well." Your point on "pairings" is insightful, and well taken by a very few.

However, most people just do not have the time, conceptual framework, and/or analytical skills necessary to assess disparities between the members of such pairs. Indeed, the assessment of the relative merits of just four entities in relative pairings will cause an extension of analysis to 6 ratios, not counting the reciprocals. Beyond that - - well, "the more the messier".

There is indeed a way to simplify a lot of this to where most folks can handle their investments with less stress and limited time. For a base model, I would direct you to the work of the late Harry Browne. There is a title (Fail Safe Investing) at his website (run by his widow, I believe) which presents a greatly simplified, and very helpful view on the matter. It’s $9.75 for an ebook that takes maybe 2 hours max to read. (Disclosure – I get nothing - - zip, zilch, nada, de rien - - for this endorsement.)

I am delighted to do it because his work has saved me untold wasted hours, major anxiety, and untold thousands of hard earned income. I’m the patient in the old Yiddish joke... Doctor: "Are you comfortable?" Patient: "I make a living.") This book must date back to ’89 or so since that is when I discovered it under another title. The link is here:

So... I discovered it in ’89 -- a fair question is whether I have used it. "Yes!" From the moment I picked it up... on my portfolio, as well as on my parents’ and in-laws’ for over ten years. Next question - - "Did it perform as advertised?" Affirmative, again. Last question - - "Do you still use it?"

As a basic platform to guide my thinking, yes. As "the" model for detail – no. Browne’s model has afforded me the time and his insights have allowed me the ability to ask the right questions to develop my own model which -- for the last 10 years -- has provided greater comfort and quite reasonable returns though at the cost of weekly involvement. Most people would not want to get involved in my method -- too much math. [I could probably simplify to a 50–page ebook and an Excel sheet ‘robot’ if there was interest though.]

The next set of questions will the expected ones from a sophisticated and skeptical reader base such as yours.

a) "Is this just about budgeting, etc. ?" – No. I (well, we) have not budgeted in years. I set an expectation of how much our growth in net worth is going to be for one year out. Almost magically, spending comes in line to a "sustainable future" orientation. (I think this is because we’re working toward a visible goal rather than just taking what we can get.)

b) "Does this take a lot of time?" – I don’t know… is an hour a year (around January 1) a lot of time to you? (Yep – an hour a year. Maybe three, if a person is not well organized -- or hung over from New Year’s Eve.)

c) "Must be a lot of esoteric stuff I need to study up on, right?" – Ummm, no, that’s a concept that Wall Street has been using an excuse to pick everybody’s pockets all this time. There are only four (4) asset classes that matter for a “passive” investment portfolio – stocks, bonds, cash and gold. If you want to get fancier than that, well...it’s just a lot of wasted effort -- and a whole lot more risk.

d) "What about my real estate as an investment class?" – Real estate is an active business, not the "passive" investment that folks envision for a retirement savings vehicle. For that you will have to get involved in budgeting, cash flows, balance sheets, etc. Specifically, your house is your home – while an asset, you have to live somewhere; it is not part of a retirement portfolio. Same thing is true of your business, if you have one.

And then, of course, the same sophisticated and skeptical readers will inquire as to the downside of such an approach. Well -- here they are as bullet points:

The approach is boring. It just doesn’t have that 'Las Vegas' feel of "action".

It makes you an outcast since it does not allow for following the "next BIG thing." (Well, it does actually, but that is part of a Variable Portfolio – sized to max 10% of the Permanent Portfolio.)

"It’s so easy everybody will be doing it!" – Well, they haven’t for twenty year... and considering the first two bullet points, they’re not likely to start anytime soon. Please remember that the populace (investing public included) "loses their mind quickly as a herd and regains it on an individual basis very slowly." (Wasn’t it Blaise Pascal who noted that mankind’s miseries derived from the inability to sit quietly alone in a room?)

"The approach won’t make me rich." Correct...and neither will any other passive investing approach. But it can keep you more than even and that is significant. There are very few investment approaches out there that allow one to take more out than they put in... including any dividend and/or interest returns.

In the immortal words of the Mogambo Guru, "If you want a hamburger in the future, you need to save the cost of a hamburger today." Earnings come from our occupation and our earnings are being rationalized to the equivalent of a global workforce -- in short, on a purchasing power basis they are headed down. This approach allows one to take advantage of major trends in motion without a lot of taxable events, minimal downside risk and a laughably low time investment.

"I need to see XX% annual return." Understood, and there’s the problem. Most folks do not have an appropriate idea of "expectation" when it comes to their investments. What has Buffet (Warren, not Jimmy) done in terms of performance? I seem to remember about 22% or so on an annualized basis over time -- and let’s remember that he is spending most of his time on company selection, he’s deeply assimilated Graham/Dodd’s work, he has a staff and that he owns a commanding share of most of his holdings over the last 20 years or so. Heck -- if us mere mortals can eke out an even 8% (that your pension manager can’t) - - then we’re stars. And, based upon experience, I believe one will find returns of better than 10% per year over time.

The ultimate in sophistication is the ultimate in simplicity. Be a human being (have a life), not a human "doing" (spend lots of time to make lots of money for what purpose?).

Expect that the ongoing crisis will force a "de-financialization" of the economy – in short, towards a simpler set of investment vehicles for savings that you can accrue.

The defining question for the next 10 years will be "What IS money?" Get ahead of the curve: simplify your thinking, save what you can, and spread your bets. There are no real "gurus" out there who know "what’s best".

I’m in the business of financial forecasting and experienced in the maxim that those " who make a living with a crystal ball often wind up eating ground glass".

Cost of speeding 20 mph over post without a license in Tennessee? $827.00 and a free lunch at lock up if you can’t make bail.

Note from the Peanut Gallery (CHS): Is this fine posted on every speed limit sign, or is it kept a little secret until you get busted? If so, then what disincentive is it? And who came up with $827? Why not $897.23, or $19,783.11? If you're flat broke, $827 and $19,000 are more or less equivalent.

Next up: correspondent A.R. illuminates the fine art of small town speed traps with an example or two from the state of Washington:

Having spent several weeks with friends in the South Puget Sound area and heard numerous stories about rapacious law enforcement agencies in Washington, I was actually relieved to see that the article in the Atlantic Monthly about the new debtor's prison was reported from Seattle. I was certainly outraged and scared to learn that motorists were being treated so aggressively over minor traffic violations in order to replenish state coffers, but I was relieved because it was happening in a state long notorious for rapacious traffic enforcement.

When I was staying in the South Sound, I was told that two municipal police departments in the area were notorious for existing as little more than highway robbery outfits. One was in the city of Roy, a glorified village east of Fort Lewis, and the other was in the city of Steilacoom. Although by some accounts Roy had a more rapacious police force than Steilacoom, my friends and I were much more familiar with Steilacoom because we visited it frequently and because it was hard not to run into people who had been cited by the Steilacoom Police Department.

Steilacoom is a beautiful, charming city perched on a hillside leading down to a ferry dock on the Sound. It was Washington's first territorial capital and is the oldest incorporated city in the state. However, there is no justification for its continued existence as a political entity at its present size. It is too small to expect any efficiencies from a paid police force or from any other paid municipal agency. In a state heavily reliant on sales taxes, Steilacoom has a very small retail base, even relative to its population, so its tax base is constrained.

Common sense about administrative costs or internal discipline would dictate the disbanding of the Steilacoom Police Department in favor of a larger agency with some economies of scale and credible internal affairs protocols. Merging its municipal force with Dupont's would be a start; better yet would be a merger with the Lakewood or Tacoma Police Departments or ceding patrol responsibilities to the Pierce County Sheriff's Office. Steilacoom is not a high-crime area in need of its own dedicated force.

This is especially true because currently the Steilacoom Police Department exists not to keep Steilacoom safe, but to collect revenue from hapless motorists. A friend who was ticketed there said that Steilacoom Traffic Court is a zoo, dedicated less to due process than to expediting the processing of defendants for revenue collection, one whose judges are glad to summarily plead down citations and fine amounts in order to proceed to the next victim. He said that the waiting room was full of defendants.

Bear in mind that this was in a city the size of a large village, off the main state highways, with fairly light traffic on its main streets! But it's not so hard to reel in a full catch when unusually low speed limits are zealously enforced in safe areas and the cops have nothing better to do with their time. The same friend who described the traffic court met a man who was ticketed in Steilacoom for driving too SLOWLY in a 25 mph zone!

This friend posited that the city of Steilacoom and its police force will be left intact out of a sense of historical duty and reverence because no one will dare mess with the first territorial capital of Washington. Such a line of thinking, which many officials in the area probably believe in earnest, is stupid and disastrous. It's stupid because no one need lay a hand on the city's historical buildings, markers and archives in order to disband its current police force pursuant to RICO; based on what I've heard, the Steilacoom Police Department is as worthy as any organization for prosecution as a racket or a corrupt organization.

It's disastrous because sworn police officers and judges are being directed to violate and pervert their oaths of office by engaging in activity tantamount to highway robbery, and because a municipality is potentially being given extra latitude to operate as a criminal racket with the force of law because it is the heir to a venerable political history.

Obviously, the debtor's prison described in the Atlantic Monthly article is a lot worse than anything I've heard of from Steilacoom, but they're both part of an ongoing and apparently worsening problem that Washington's elected officials and voters are not doing enough to resolve. Police officers and judges entrusted with the enforcement of traffic laws are taking highway robbery in the name of public safety to extremes. If Washington state's voters and elected officials are too apathetic or greedy to force reforms, perhaps officials answerable to the other Washington should be engaged. From what I've read about recent federal consent decrees and receiverships governing local police agencies, they're better for the public than the alternative of inaction, and the Steilacoom Police Department may well be corrupt enough to be placed under one.

I'm sure that many people will worry about interference by cumbersome federal officials, and they have valid points, but this is far from the only case where local and state authorities are unwilling to stop making a dangerous mockery of law enforcement. I'm not familiar enough with case law to say for sure, and I hope that there are viable local or state options, but federal intervention may be the only way to compel meaningful reform.

Note from the Peanut Gallery (CHS): So how is this any different from countries like Mexico where underpaid (or unpaid) police extort money via bogus traffic fines and trumped up charges? I see no difference whatsoever, lending more credence to the current Web meme that the U.S. is in essence a banana republic/Third World country riddled with corruption and fraud from the highest levels to the lowest depths of local bureacracy.

Everyone seems to fear the Federal government, mostly with good reason, but as someone who had run-ins with the F.B.I. for nonviolent political "crimes" in the 70s ( i.e. resisting illegal wars that would have revolted the Founding Fathers), I would rather have a Federal court and authority to deal with than a rogue local police department. At least the F.B.I. won't drag you from your car, beat the crap out of you and then charge you with assaulting a police officer.

(As noted below, the Federal agency approach is to hire thugs to do the dirty work.)

I have many sworn officers in my circle of family and friends, and while most officers and PDs are doing their very best in a troubled time with wilding meth freaks and heavily armed drug gangs, rogue PDs get away with a lot because they're protected by the ideal of giving police departments some slack and the "closing of the ranks."

At some point, you need a higher authority to clean out the rogue PDs because the local Powers That Be are incestuous.

That said, the F.B.I. itself went rogue in the 1960s and 70s, completely trampling the Constitutional rights of the citizens via COINTELPRO, the FBI's secret campaign to infiltrate, undermine, marginalize and/or subvert the antiwar movement. (Regardless of whether you supported the war or its supposed goals, the war was illegal from the get-go. And remember what Washington said about "foreign entanglements"?)

These programs employed illegal entry ("black bag jobs") and surveillance, extralegal force and violence (creating and funding extremist front groups to commit the violence at arms distance from the Federal government), and psychological warfare ("dirty tricks," harassment, misinformation, setting up pseudo-movements run by government agents, threaten activists' parents landlords, employers, etc.) The 1976 Church Committee formed to investigate the domestic intelligence campaigns concluded:

"Many of the techniques used would be intolerable in a democratic society even if all of the targets had been involved in violent activity, but COINTELPRO went far beyond that... the Bureau conducted a sophisticated vigilante operation aimed squarely at preventing the exercise of First Amendment rights of speech and association."

Anyone who doesn't believe their government is capable of Police State repression and subversion of First Amendment rights should research COINTELPRO more fully. While you might have disagreed with the groups subverted in 1969, the line between "those radicals" in 1969 and "us tax protesters" in 2009 is thin to vanishing.

Nothing will be more threatening to the State and status quo than tax resistance/rebellion and former insiders (those whose belief in the system has faded) turning into whistleblowers. (End comment from the peanut gallery.)

Correspondent Bruce S. offered a completely different perspective on the entry, noting the car-centric nature of the fines.

I've been familiar with your blog for a couple years. I usually approve of what you say. However, I disagree vehemently with your most recent entry. Of course local government is doing everything it can to increase revenue, by hook or by crook, and will not contemplate reducing payouts, for the reasons you describe. Old news, seen it coming for years.

The thing I OBJECT to is the particular items you chose: everything was associated with automobiles. and seemed to operate on the base assumption that it is every American's god-given right to own and operate an automobile. I think you're missing the forest for the trees here: the very nature of the change sweeping north america, driven as it is by greed, corruption, and falling net energy extraction from fossil fuels, will eliminate the ability of poor people, and then middle class people, to use automobiles.

I am well aware that this country is entirely auto centric. Specifically, we spend our energy resources in this way (approximately):

Now, the evidence is VERY clear that, unless the USA is able to militarily maintain its hegemony, which seems very unlikely, the energy resources available to the USA will decline at a substantial rate each year: perhaps 5% to 15% per year, starting pretty much immediately, depending more on politics and the outcome of brush wars than on Geophysics. When you look at the numbers and figure out WHAT HAS TO GIVE, and IN WHAT ORDER, it becomes VERY clear that the easiest place to trim our energy use is to cut it from (automotive) transportation. One need not be a rocket scientist to conclude that the FIRST group that will lose access to automobile ownership is the poor and homeless, followed by the (vanishing) middle class. This is inevitable.

So, your I found your rant about how local governments are overcharging for driving-related issues to be somewhat disingenius. of COURSE poor people are losing the ability to drive: not only is this inevitable, but it's actually FOR THE BEST. The sooner people experience the pain of having to use non-automotive transport, the sooner they will get angry and demand change. Some people might even start to recognize the foolishness and futility of trying to maintain a 'happy motoring' economic system in a time of declining fossil fuel production.

So, please quit whining about barriers to owning and operating a car for poor people. The sooner they STOP TRYING to operate a car and figure out other ways to do things, the better off they, and all the rest of us, will be. Our auto-centric transport system is clearly GOING TO FAIL - please don't try propping it up, instead encourage it to fail more swiftly, so we can move on to whatever comes next.

Note from the Peanut Gallery (CHS): Bruce's missive made me realize that I'd done a poor job of staking out my objections to the rapacious "driving while poor" fines, and so I emailed him this response:

While I understand your primary point about the problems created by a car-centric economy, I realize I should have been more clear about my main objection to the car-centric fees.

1. These do not relate to the metrics used to levy other taxes such as consumption and income2. They are arbitrary I.e. unrelated to anything but the greed of local govt3. They bypass the democratic process by which local govt. should approach the voters/taxpayers with proposals which raise taxes, I.e. taxation with representation.

Having recently visited L.A., I can certainly agree that everyone would be better off without a car, poor and middle-class alike. I happen to live in the S.F. Bay Area where doing without a car is actually do-able due to the subway/bus/trolley system. However the poor person in LA has a much more difficult time without a car.

Is this the policy makers fault or the poor person's? Clearly, it is the policy makers fault. Therefore we have to direct our energies to modify the car-centric urban landscape at the planners and policy makers.

Thank you for writing and contesting my rant. A good solid debate and sharing of ideas is always helpful.

Thank you, Jeff, A.R. and Bruce, for your comments. Given the declining tax revenues at the local level, I expect the issues raised here to only grow in importance and impact. It seems obvious that the exploitation of those caught "driving while poor" is unconscionable and a corrosive example of abuse by local government powers.

Thursday, October 22, 2009

The nominal rise in the stock market masks a brutal depreciation of purchasing power.

Frequent contributor Harun I. submitted a chart of the Dow Jones Industrial Average from 1897 to the present. This is of course priced in nominal (not adjusted for inflation) dollars. Curious about what the chart would look like adjusted for inflation, I asked Harun if he could conjure up such a chart, and he kindly produced an inflation-adjusted Dow.

Now before we look at the charts, we should note the many ways both the Dow and the rate of inflation have been massaged (or manipulated); weak stocks are pulled from the Dow 30 and replaced with stronger companies, and inflation has generally been under-reported by tricks such as overweighting "owner's equivalent rent" (some 40% of of the CPI calculation) and other suspect methods of calculation.

Be that as it may, the charts paint an unambiguous picture of a tremendous loss of purchasing power in the stock market as reflected by the Dow 30. We start with the nominal Dow, with a 200-month simple moving average line.

Click on chart for a larger version in a new browser window.

Next up, the Dow adjusted for inflation.

Click on chart for a larger version in a new browser window.

Notice how the inflation-adjusted price actually touched the 1966 high.

Even though stocks traded sideways during the 1967-1982 Bear market, adjusted for inflation the Dow lost a tremendous amount of purchasing power.

The recent nominal high in 2007 is revealed as no more than a double top when adjusted for inflation.

Next, the Dow -gold ratio (the Dow priced in gold).

Click on chart for a larger version in a new browser window.

Priced in gold, the Dow returned to 1987 levels of valuation.

These charts make me wonder if the rampant speculation we see in every layer of the economy isn't just a reflection of (normal) human greed but a reflection of a desperation to catch up/not fall behind. In other words, investing "for the long run" hasn't increased purchasing power as much as nominal prices suggest. Perhaps people sense they're falling behind in actual purchasing value of their money and assets, and as wages have actually dropped for most workers since 1973, then the loss of purchasing power is in effect doubled.

Sensing that they are falling behind, perhaps people are stepping up to the roulette wheel in a desperate bid to catch up and restore the purchasing power of their money and assets.

There is no gambler more desperate than the one who has lost a number of bets. It is not greed driving his betting so much as a desperation to recover what has been lost. Perhaps that is the underlying zeitgeist of the U.S. real estate and financial markets alike.

Wednesday, October 21, 2009

Commercial real estate is a house a cards about to collapse on multiple fronts for deeply structural reasons.

Correspondent Thomas H.submitted this fascinating story: 'Pop-up' stores are becoming an overnight sensation. (Los Angeles Times) The basic idea is that retailers are not signing 5-year leases anymore--they're signing 20-day leases for 'pop-up' stores which have the lifespan of an insect and low costs for retailers seeking to unload discounted inventory in a hurry.

The model has been well-established with "holiday theme stores"--retail operations which sell goods aimed at a specific holiday such as Halloween for a few weeks prior to the holiday. (Never mind that the Halloween frippery is massively overpriced--doesn't anyone make their own costumes any more?)

The real surprise is major retailers such as The Gap and Toys R Us are using the "pop-up" model:

These quickie retail operations -- known as pop-ups -- are showing up throughout Southern California and around the nation, filling in the gaps at recession-battered shopping centers for a fraction of the regular rents.

Once limited to seasonal shops and dusty liquidation centers, pop-up stores are now being opened by some of the nation's biggest retailers.

It's a trend that could reshape the nation's retail landscape if it continues, diminishing the power of commercial landlords and making it easier for merchants to test new locations and products with little commitment.

Gap Inc. recently opened a pop-up shop on trendy Robertson Boulevard to promote its new premium denim line; celebrities including Halle Berry and Ashlee Simpson-Wentz turned out to the shop's launch party. Toys R Us Inc. is setting up about 80 temporary toy shops nationwide, including several at upscale malls previously unavailable to the chain. J.C. Penney Co. touted its back-to-school offerings through interactive pop-up displays in half a dozen Southern California malls.

The end of the recession, he predicted, would not necessarily bring an end to the model.

Credit-card debt dropped the most, falling 13.1%, or $9.91 billion, to $899.41 billion. It was the 11th uninterrupted month of declines, the longest on record. See full story.

With unemployment at a 26-year high of 9.8%, many consumers have no choice but to tighten their belts. But more and more, consumers are closing their own accounts and choosing not to use credit cards because they're just plain angry.

"There's an enormous amount of backlash against the banks," said Dennis Moroney, research director at Tower Group. "It's like in the movie 'Network,' people are saying, 'I'm mad as hell and I'm not going to take it anymore.'"

Credit-card holders are so irritated that 32% of them told Consumer Reports in a recent survey that they have paid off or closed a card in the last 18 months. Half of those who canceled did so because they were peeved by recent actions credit-card issuers took, such as cutting limits, hiking interest rates, jacking up fees or imposing new charges.

At the risk of being tiresome, let's go over the foundation of the U.S. economy once more:

1. Consumer spending is 70% of GDP.

2. Expanding credit and borrowing are the lifeblood of consumer spending.

4. Banks are functionally insolvent and are not lending as they did during the bubble boom.

5. Millions of Baby Boomers have realized that their current assets and savings enable a retirement in:A. a sturdy cardboard boxB. a camper/20-year old RV on "The Slabs" (or equivalent)C. Aunt Matilda's house if Auntie has the good grace to croak off fairly soon.

Thus this is no "dip in consumer spending"--it is a generational sea change with no end in sight.

Not only are consumers increasingly unable to borrow or unwilling to do so, but much of the overbuilt retail sector sells items which are superfluous (and that's the polite description). I have prepared a grpahic depiction of the earthier truth:

It's not just retail that is doomed, of course; the hotel/hospitality sector is massively overbuilt and overleveraged. Everyone, it seemed, was chasing the "luxury" and business traveler. Now that the cold wind of reality is rising, owners are discovering that the hotel they bought for $250 million with a $230 million mortgage is worth about half that amount--at best: Hawaii Hotels Face Fewer Visitors, More Debt.

As for commercial office space--ponder this data point. It was recently announced that Internet darling Twitter leased more space in San Francisco as it was expanding its 30-person staff to maybe as high as--gasp!--100.

Let's follow that to its conclusion: the "hot headline" tech companies have vanishingly few employees, and a significant majority of them can work partly from home or from some other remote location. They don't need a cubicle or a conference room or an office at all.

Even mighty Google employees about 16,000 people globally--perhaps a tenth of a major industrial company like GE and not much more than the student populace of a moderate-sized state university.

And many of these people can work remotely as well. The truth is you don't need huge office towers for the new economy.

Here's the deal. Local government has grown fat in a decade of gargantuan capital gains and real rising real estate taxes. Employees pulling down over $100,000 each are legion, as are public retirees pulling down over $100,000 a year in pension payments. Local government has added 15% more employees even as population grew by a meager 3%. (The numbers may vary in your area but the percentages won't.)

Now the seven fat years are over and local government is not liking the seven lean years. Now that housing has plummeted, so have the tax rolls; capital gains have dried up and even sales tax revenues are crashing. Despite the usual bleatings of hope, the chances of tax revenues recovering are slightly lower than the proverbial snowball's chance of remaining frozen in Heck.

Meanwhile, a perfect storm is gutting public pension funds.More Pain for State's Taxpayers, Cities: CALPERS losses $50B. In order for the State amd local governments of California to meet their future pension obligations (paid by CALPERS, the massive public pension fund), they need to kick in hundreds of millions of dollars more in coming years, even as their revenues are falling.

The conclusion that the medical and pension benefits which were promised in the fat years are no longer payable is anathema to public unions and managerial staff alike, and so the machinery of local government has geared up to stripmine the citizens like a giant trawler stripmines the sea: parking tickets have been jacked up to $60 or more, traffic violations are in the hundreds of dollars, speed traps abound, and as noted in the top story, fees for "crimes" like driving without auto insurance now cost more than the insurance itself.

And gosh forbid if you don't pay on time--the penalties double the original fine and then go up from there.

Is there anything more pernicious, malicious and immoral that this criminalization of poverty to engorge the coffers of local government? If John Q. Citizen defaults on his credit card, he might have to endure harrassing phone calls from bill collectors. But worst case, he can unplug his phone or cancel that number and get another phone number. Fortunately, the bank cannot have him imprisoned (yet).

But local government isn't quite as kind and gentle as the bankers. Mess with their revenues (i.e. don't pay the hefty fines they levy) and they'll haul your carcass into court and then into jail (can't make bail? Too bad. You're a full-blown criminal now.)

Exactly what is the difference between racking up $1,000 in fines off an innocuous violation and being imprisoned for lack of payment and a 19th century-era Debtors prison?

Isn't this part of the reason why the Parisian mobs tore down the Bastille?

Does this make any sense at all, arresting people who can't pay their nonsensically stupendous fines and penalties just so government employees don't have to take a cut in pay and benefits? When did a ticket go from $50 to $300 and up? And why? Does anyone think the cost leaped up "for the public good"?

Is getting nailed for a ticket you can't pay really a deterrent to being too poor to keep your auto insurance current?

Let's follow this all the way to the end. Now that John Q. Citizen is in jail because he was nabbed driving without insurance and a big fat fine is outstanding, aren't the taxpayers throwing away $50,000 to $100,000 a year to process his tortured journey through the Kafkaesque court and jail system with those other "dangerous criminals"?

Hey, the war-on-drugs/prison/gulag pays very well, thank you, and filling cells with Mr. Citizen is just grist for the mill.

Now when Mr. Citizen is released (darn it, we can't get blood from a turnip!), his car has been impounded and he owes the towing yard $1,000 which he doesn't have. So he no longer has a car to get to work, or even drive to an interview.

OK, so maybe he was irresponsible in not setting aside enough money for the car insurance. Is that now a criminal offense? Is this the best use of police officers, judges, jails and the "justice" system? Is anyone being deterred by the ruthless criminalization of poverty? Please make the case for that, local politicos and bureaucrats.

Great work, local government. You've not only stolen the citizen's last few dollars, you've also deprived him of his employment opportunities and livelihood.

Here's a thought: you need more tax revenue? Then make the case to the citizens at the ballot box to pay more. Prove you're not squandering the tax money you're already getting by the boatload. Show us how you're going to spend our money as carefully as we do.

If you really want to stripmine somebody's cash assets, why not start with your local Wal-Mart? I can guarantee you they won't leave town when you enact a new ordinance taxing all retail establishments of 50,000 square feet or more.

Or impose a tax on all homes worth more than triple the median price in your zip code. You want to nail somebody with higher taxes? Then go after the top 5% who still have assets. Don't trawl the streets for the folks who can least afford your rapacious imposition of authority.

Bankers aren't the only rapacious greedheads in this nation. Look no farther than city hall, the county building and the State capitol. Just hope it isn't you who runs low on cash and gets nailed with that $395 ticket which soon morphs into $695 and an arrest warrant.

You can't blame local government avarice on Washington or the bankers. All this greed is homegrown, local and entirely unnecessary. As it stands now, 10% or maybe even 20% of the citizenry will soon have outstanding arrest warrants for what amounts to local government Debtors Prison.

Come November 2010, we can only pray that the citizenry "takes care of business" at the ballot box, and all the incumbent politicos who approved this evil criminalization of poverty get tossed out en masse, regardless of party affiliation.

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